This railway company beat analysts’ estimates by $0.05 last quarter, and in the past 30 days, three analysts have increased their EPS forecasts for the company.
Canadian Pacific Railway Limited (CP.TO)
From The Successful Investor
Canadian Pacific Railway Limited (CP.TO; Conservative Growth Portfolio; TSINetwork Rating: Above Average) transports freight over a 22,000-kilometer rail network between Montreal and Vancouver, as well as to hubs in the U.S. Midwest and Northeast.
Bulk commodities, such as grain, coal, potash and fertilizers, supply roughly 44% of CP’s revenue. Merchandise such as automotive equipment, metals, consumer products and forest products accounts for a further 35%. The remaining 21% comes from intermodal traffic, which consists of containers that travel by rail, ship and truck.
CP stands to gain from increasing volumes of grain: In the past five years, Western Canadian grain exports have jumped 40%. In response, the company plans to purchase 5,900 new railcars for shipping grain (called “hoppers”) over the next four years. The new hopper cars carry 20% more grain than the current railcars. The lack of new oil pipeline construction also continues to boost demand for CP’s crude-by-rail services.
At the same time, the company continues to boost its efficiency with new locomotives and train tracks, and software to optimize its trainloads and speeds.
As a result, CP’s projected operating ratio will probably improve from 62.0% in 2018 to 60.3% in 2019. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower that ratio is, the better.)
The company will likely earn $16.35 a share in 2019. The stock now trades at a moderate 15.4 times that forecast.
Patrick McKeough, The Successful Investor, www.tsinetwork.ca, 888-292-0296, February 2019